Manufacturers come up for air

The nation’s manufacturers clawed their way up off the floor in December as the sector grew for the first time in six months.

Despite persistent challenges from the high Australian dollar and global economic turmoil, a key measure of the sector’s performance, the Australian Industry Group - PwC Performance of Manufacturing Index, showed the industry expanded last month.

The rise in the index to 50.2 was the first time the sector has registered growth since June and was only the third positive month since August 2010.

The strongest expansions were in basic metals, paper, printing and ­publishing, and transport. But those gains were largely offset by declines in fabricated metals, chemicals, petroleum and coal products, construction materials and textiles.

Australian Industry Group director of public policy Peter Burn said the result was also geographically patchy, with only Queensland’s manufacturing sector producing a positive growth figure.

Inventories were also rising, suggesting that production was outstripping demand from retailers, he said.

“It is a small expansion so I wouldn’t be getting carried away with it. It is not a great number and it is coming from a pretty dismal level."

Dr Burn said data from the Australian Bureau of Statistics showed capital investment by manufacturers had spiked recently, suggesting they were looking to boost productivity and take advantage of the high dollar to import equipment.

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“Employment has fallen by 7 per cent in the three years to the end of November while output is higher in volume terms than it was three years ago, so productivity must have risen," he said. “Sometimes you have to spend money to make money and sometimes you have to spend money to stay alive."

While volumes had improved over time, margins had eroded to “nothing" because of the high dollar and competition from importers, he said.

Dr Burn said the industrial relations climate appeared to be an impediment to continued gains in productivity as “conservative" unions blocked attempts by companies to alter they way they operated.

“To raise productivity is pretty hard to do if you can’t get changes in work practices," he said.

There has been bad news from major manufacturers in recent weeks.

OneSteel announced a $150 million asset impairment late last month, blaming a sluggish residential construction market and the slow economic recovery in America.

Heinz will close the doors on its tomato sauce factory in Girgarre, Victoria, on Friday, having decided last year to move production to New Zealand. Heinz Australia’s supply chain director, Mike Robinson, said yesterday the cost of making the factory competitive was too high.

“Girgarre requires millions of dollars of investment just to keep the plant going, with no likelihood of making it competitive into the future," he said.

The managing director of Melbourne muesli producer Carman’s, Carolyn Cresswell, said her business had grown 40 per cent last year and the coming year domestically was “very promising".

But the challenge of the high dollar had prompted Carman’s to completely recast its American offering this year. “It has just been too long," Ms Creswell said of the long period of parity with the US dollar. “You can’t put your head in the sand."